In a statement, CNMV said European shares have been hit with "extreme volatility" that might cause the "disorderly functioning" of financial markets.

Regulators in Italy and Spain, as well as France and Belgium, imposed a temporary short-selling ban in August 2011, at the height of the last major flare-up in the eurozone debt crisis.

Back in 2008, the Securities and Exchange Commission banned short selling for 799 companies in the wake of Lehman Brothers' collapse. The move was aimed at restoring confidence and stemming a steep stock sell-off.

The bans could limit the selling in the short-term, but longer-term, investors want concrete evidence that the global economy is turning around.

Investors are currently concerned that Spain might be forced to seek a bailout similar to those taken by other troubled euro area economies, although Madrid reiterated Monday that it will not need additional aid.

>

Spain's benchmark stock index, the Ibex 35, slid 2.3% Monday. In the bond market, yields on 10-year Spanish bonds rose to another record high of 7.5%.

In Italy, shares fell 3.6% on the Milan stock exchange. Shares of certain Italian banks, which were halted earlier, continued to sell-off. Shares of UniCredit (UNCFF) fell 3.3%.

U.S. markets plunged nearly 2% as the worries about Europe spread. The Dow Jones industrial average (INDU) was down 220 points, while the Nasdaq composite (COMP) shed more than 2% and the S&P 500 (SPX) lost 1.7%.